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April 2014

Propane Crisis Elicits Reader Response


I expected last month’s Consumer Checkpoint column on the propane shortage would generate considerable reader comment and I was not disappointed.  I received phone calls and e-mails from frustrated homeowners who were quite unhappy about the size of their propane bills.  One Mauston reader commented that local propane providers likely lost money during the crisis while another reader questioned why there isn’t more propane regulation because of potential price gouging.  Yet another reader expressed relief that he had installed a geothermal heating unit for his home and was paying far less for electricity to run the system than what he would have paid for propane. 

First, Wisconsin electric cooperatives continue to encourage members to conserve energy and while geothermal units may be relatively costly up front, they can provide a relatively quick return on the investment, particularly in years when propane prices are high.  Second, many energy cooperatives are reporting they have lost money this year because they are attempting to reduce the sticker shock for members by not passing along all of their costs, including the cost of trucking in propane supplies from the Carolinas and Oklahoma.  Third, I too am concerned someone in the energy distribution stream made substantial money from the shortage and I understand federal energy regulators are looking into this possibility.  However, my own research indicates your local cooperative energy supplier is not the guilty party.  This makes sense to me because cooperatives, unlike for-profit businesses, are not incentivized to make substantial profit because they are not-for-profit and, over time, return their profits to members through patronage and equity redemptions.

CHS, the owner of the CENEX brand, has already invested more than $30 million this year to improve the truck, rail loading, and rail car infrastructure to help ensure sufficient propane supplies reach the Upper Midwest during the 2014-2015 Winter heating season.  This investment by the nation’s largest cooperative is vitally important due to the permanent shutdown of the Cochin pipeline later this month. 

I have no doubt many readers were shocked by their propane bills this winter and I, like many readers who entered into supply contracts in the summer or fall of 2013, understated the amount of propane we purchased under the contract.  Therefore, I too felt some of this pricing hit.  However, I once again recommend readers explore entering into a fixed-price contract for the upcoming winter heating season with your local cooperative fuel provider because this is the only way to create a more predictable budget. The choice is certainly your own, but I would rather not gamble on propane prices next winter given the permanent closure of the Cochin pipeline.

 


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